“Mobile is Eating Bricks and Mortar”

Gian M. Fulgoni

Chairman Emeritus

My colleague Andrew Lipsman, VP of Marketing Insights here at Comscore, penned the above headline as he was analyzing the trends in online shopping and buying this past holiday season. It succinctly summarizes what we think happened, and I thought it valuable to elaborate a little on the issue in light of our upcoming 2016 U.S. Cross-Platform Future in Focus report, which includes our first publication of full year 2015 e-commerce data.

It’s no secret that traditional retailers have been under pressure from the online channel. The advantages of lower prices, broader selection and convenience offered by e-commerce have been luring consumers to buy online for the past decade. But within the past three years, there’s been a technological dislocation brought about by the smartphone that has accelerated the channel shift. In essence, these devices have allowed consumers to cut back on their visits to retail stores and, along with that, their offline spending. Consumers can still visit a single physical store if they feel a need to “touch and feel” a product, but with smartphones they can now compare prices and features across all retailers while remaining in the store and not having the inconvenience of moving a single step. Simply stated, the mobile buying process has become too easy. Couple that with the rapid increase in the number of smartphone owners – about 200 million today in the U.S. – and the growing familiarity with mobile use, and you have a recipe for shopping behavior the likes of which we’ve never seen before.

The 2015 shopping season proved it, as we saw an explosion in the use of mobile devices for digital shopping behavior. It accounted for an eye-popping 63% of all online retail visits this past season.

Because of this, when we look back at the season and view digital commerce in the context of the growth in total consumer spending, we see some startling numbers regarding mobile’s contribution to the growth in overall consumer spending.

Comscore estimates that total consumer discretionary spending (i.e. excluding gas, food / beverage and autos) grew by 4% during the November - December season. That compares to estimates of 3% from the National Retail Federation, 4.6% from MasterCard and a forecast of 4.5% growth from Boston Consulting Group. So, the Comscore growth rate is approximately in the middle of the range compared to these other data sources.

However, what’s really important to note is that the 2% growth contribution from in-store sales is essentially the same as the growth contribution from online buying (1.9%). This happens because, while digital commerce is still smaller than in-store buying, its growth rate is far higher. Further breaking down the 1.9 point digital growth contribution, we can see that m-commerce actually contributed about 70% more growth than e-commerce.

With online buying accounting for half the growth in consumer spending, it’s imperative that traditional retailers capture their fair share of the channel shift. That’s easier said than done. But even if they succeed, retailers need to be careful of what they wish for. There are additional costs associated with digital commerce that reduce profit margins. Chief among these is the cost of free shipping, and Comscore data show that percentage of transactions involving free shipping increased substantially this past season to around 70%+ each week as compared to the previous year’s range of 50-65%.

Bottom line, multi-channel retailers are finding themselves in a very challenging position. Yes, they can try to increase their share of offline spending, but if half of consumers’ spending growth is coming from digital, then retailers have no option but to also focus on building their online presence as the channel shift continues unabated. However, even if they succeed from a top-line perspective, the additional costs of doing business online threaten to reduce profit margins. This may help explain the divergent financial results for the season among multi-channel retailers. Some weathered the storm from both a sales and profit perspective, but many paid a price in earnings as they fought to gain or even maintain digital share.